Medicare prescription drug bill moves toward individual choice

Most informed college students know that Medicare is the government program that pays for medical care for the elderly and disabled, and that it is the primary health insurance program for over 40 million Americans. Health care-related expenditures account for approximately 14 percent of the U.S. GDP, and the federal government pays for 45 percent of that amount in the form of the Medicare and Medicaid programs. Also, Medicare provides a substantial part of most health care professionals’ incomes. Because the government has such a large economic influence within the health care market, public policy reforms supplemental to market-based reforms are seen by many as the most effective way to combat rising costs and increasing inefficiencies within the system.

College students may also know a bit about the program’s complex history, which began on July 30, 1965, when President Lyndon Johnson signed the Medicare bill into law in order to improve the quality of life of aging Americans. The creation of Medicare was a major event in a long and bitter political struggle to create a system of government-financed health care; the peculiar form of Medicare we have today is based upon now undesirable political compromises and a lack of foresight as to how much the cost of health care would increase or how the programs would continue to be funded in the future.

However, few students know anything about the structure of the program or how it is funded. Medicare is divided into Parts A, B, and C. Part A is the hospital insurance program and is funded by a 2.9 percent payroll tax paid by all working Americans. Part B is a voluntary, supplementary medical insurance which pays for outpatient services and is financed by premiums deducted from Medicare beneficiaries’ Social Security monthly payments as well as through general government revenues. “Medicare + Choice” is Part C, the managed care part of the program. Medicare pays a fixed amount of dollars per beneficiary who chooses to enroll in a managed health care plan, typically a health maintenance organization (HMO). Despite the approximately $78 billion that the federal government pays for Medicare from general revenues, this money does not go through the appropriations process — and is one of the largest unfunded liabilities of the government.

What remains uncertain for some individuals today, students and experts alike, is the future economic and political effect of the new Medicare Prescription Drug, Improvement and Modernization Act of 2003 signed into law by President Bush on Dec. 8, 2003, which provides the most comprehensive additions to the Medicare program since the 1997 addition of the “Medicare + Choice” option to beneficiaries.

In “Prescription drug bill is a bad deal, political ruse (1/15),” Jonathan Menitove describes the Modernization Act with frightening syntax and claims that under the new law, most seniors will actually pay more for prescription drugs. He also contends that drug companies should be pressured by the government into lowering the prices of their drugs, and that these companies, rather than Medicare recipients, will be benefited most by the new legislation. Menitove’s remarks are spin, and they show his bias. Perhaps Menitove’s most aggravating remark, though, is his contention that this complex, bipartisan reform that has been three years in the making is merely a conveniently timed political ploy for Bush to win votes from seniors in this year’s election.

It is true that the Modernization Act will, beginning this spring, provide an important first step towards comprehensive Medicare prescription drug coverage. Medicare beneficiaries will be able to enroll in a discount card program that will offer savings on prescription drugs, and the poorest beneficiaries will also qualify for as much as $600 per annum subsidy to help them pay for drugs. The discount program is intended to be temporary, and in January 2006 the more comprehensive prescription drug benefit program will begin when beneficiaries choose between private health plans. Under the full benefit in 2006, recipients will pay a monthly premium of $35 and an annual deductible of $250. Medicare will then pay 75 percent of prescription drug costs up to $2,250 and 95 percent of costs over $3,600. The legislation provides badly needed drug coverage to millions of Americans, particularly an estimated 14 million low-income seniors, to whom the premium and deductible will be waived, according to the American Enterprise Institute. To Menitove’s credit, the reform does directly increase drug costs for some seniors, but only for those who can afford it — the wealthiest 5 percent of retirees (those making over $80,000 a year). Additionally, the bill deals with the failure of the “third-party-payer system” by creating health savings accounts that accumulate money and earn interest, and can be used to pay for medical expenses, all tax-free. Any American can elect to have a health savings account. Because the beneficiary can manage and save his own money, the bureaucracy and inefficiencies of the multiple party systems are eliminated.

The goal of the Medicare reform is to promote individual choice in health care, increase the range of options available for treatment, and use market forces, rather than bureaucratic rationing and artificial price controls, to bring ever-increasing health care costs under control.

The Modernization Act is by no means perfect, but it nevertheless constitutes a genuine attempt to give decision-making authority, insurance ownership and health savings back to the individual. Its true intention is to increase competitive market dynamics in the health care industry and thereby create downward pressure on health care costs — a goal that should be embraced by Democrats and Republicans alike.